Twinkies maker Hostess is going out of business, putting almost 18,500 out of work

Hostess is going out of business, putting 18,500 out of work

For decades, people have enjoyed testing the longevity of the Twinkie. In 1995, Rice University students experimented with the spongy golden log by microwaving it, dunking it in water and throwing it out of a sixth floor window. It lost some cream but survived the fall.

The longevity of its maker Hostess Brands Inc. has been also been tested, with a less favourable outcome — the iconic 82-year-old company announced Friday that it will close and fire most of its 18,500 employees.

Hostess, which makes snack cakes and loaves of Wonder Bread, is seeking a U.S. court’s permission to liquidate after failing to get wage and benefit cuts from thousands of its striking workers.

Sorry to announce Hostess Brands has been forced to close operations due to the Bakers Union strike http://t.co/eHtxaNVs

A hearing on the matter is set for Monday. The Irving, Texas-based company, which has about $2.5-billion in sales, immediately suspended operations at all of its 33 plants across the U.S. as it moves to sell assets.

Meanwhile, it is business as usual for the food companies who own the rights to Hostess brands in Canada.

George Weston Ltd. of Toronto produces Wonder Bread, while Montreal-based Saputo has rights to the Hostess brand, although it doesn’t include Twinkies among its lineup of snack cakes.

We’ve always owned the brand in Canada . . . Everything is business as usual

A spokesperson for George Weston said the Hostess decision will have no impact on business.

“We’ve always owned the brand in Canada,” said Geoff Wilson, senior vice-president of investor relations at George Weston Ltd.

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Mr. Wilson added that George Weston is not interested in acquiring Hostess lines in the U.S. “We’re very happy with our brands.”

Saputo declined to comment on whether it would take a run at any Hostess assets. Canada’s largest dairy producer, got into the bakery business more than a decade ago with its purchase of Culinar for $282-million and has been trying to grow sales in the United States in order to ramp up the cadence at its bakery plant in Ste- Marie de Beauce, Que. Analysts contacted yesterday said they had a hard time seeing the company spending any considerable money to expand the unit.

News of Hostess’s impending demise sparked a flurry of sales of Hostess sweets. Entrepreneurs on auction site eBay Inc were asking as much as $100 for a box of 10 Twinkies by Friday morning. A box of 10 had sold Friday afternoon on eBay for $59.99.

The shelf life of snack cakes in general has been shortened as more health-conscious North Americans opt for fruit and energy bars over Ding Dongs and Ho Hos.

But Hostess blamed burdensome wage and pension obligations for its financial woes. It said a strike by members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, which began Nov. 9, was the latest in a series of labour troubles that had crippled the company’s ability to produce and deliver products at several facilities.

The company has spent the last several months battling for wage cuts and other concessions from 12 unions representing Hostess workers. At one point earlier this year, Hostess had a potential outside equity investor lined up, but failure to gain pension relief from the Teamsters killed that option, the company said in its court filing Friday.

“The union has been the death of this company,” said a human resources manager who recently left Hostess.

But union officials and line workers said the company had failed to invest in new technology, brand marketing and modernization of plants and trucks and had focused instead on enriching owners such as private equity firm Ripplewood Holdings and hedge funds that include Silver Point Capital.

“They are not in the baking industry; they are just interested in the money,” said Roger Harrison, 56, who bags buns at the Hostess plant in Lenexa, Kan., and has been with the company for 35 years. “This company is so unstable that once they close, maybe someone can take over and buy it and give us more stability.”

Hostess had been gauging acquisition interest for certain brands for months and in late September received “a number of potentially viable proposals” to purchase certain assets.

SunTrust Robinson Humphrey analyst William Chappell Jr. said Flowers Foods Inc. could be among the potential buyers for some Hostess assets. And he said the company’s liquidation was a “positive step” for the sector because it will reduce the number of major vendors.

Hostess has 565 distribution centers and 570 bakery outlet stores, as well as the 33 bakeries. Besides Twinkies and Wonder Bread, its brands include Nature’s Pride, Dolly Madison, Drake’s, Butternut, Home Pride and Merita. The company said in Friday’s court filing that it would probably take about a year to wind down. It will need about 3,200 employees to start that process, but only about 200 after the first few months.

Twinkies: the All-Amercian junk food

* Hostess was able to manufacture 1,000 Twinkies a minute at its bakeries and in 2005 the Washington Post said Americans had bought US$47-million worth of Twinkies in the previous year.

* Twinkies’ surge in popularity in the 1950s was partially attributed to its ads on “The Howdy Doody Show” directed at kids, who demanded the desserts in their lunch boxes.

* Many jokes about Twinkies play off their longevity thanks to their ample chemical preservatives. There has been much speculation about how many decades a Twinkie can sit on a shelf before being eaten.

* James A. Dewar, a manager for the Continental Baking Co, came up with the idea in 1930 after seeing the machines that made shortcakes with strawberry filling sit idle at the bakery when strawberries were out of season. He injected the elongated sponge cake with banana filling – vanilla would be used later – and called it a Twinkie.